US equities have soared to their most expensive level relative to government bonds in a generation, amid growing nervousness among some investors over high valuations of megacap technology companies and other Wall Street stocks.
A record-breaking run for US equities, which hit a fresh high on Wednesday, has pushed the so-called forward earnings yield — expected profits as a percentage of stock prices — on the S&P 500 index down to 3.9 per cent, according to Bloomberg data. A sell-off in Treasuries has driven 10-year bond yields up to 4.65 per cent.
That means the difference between the two, a measure of the so-called equity risk premium, or the extra compensation to an investor for the risk of owning stocks, has fallen into negative territory and reached a level last seen in 2002 during the dotcom boom and bust.
“Investors are effectively saying ‘I want to own these dominant tech companies and I am prepared to do it without…
